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Archive for 20. April 2010

On April 16, the SEC sued Goldman Sachs for fraud with respect to the synthetic ABACUS 2007-AC1 Collateralized Debt Obligation (CDO) referencing subprime mortgages. A CDO is a vehicle to transfer the credit risk of an entire portfolio of credits to other counterparties, as opposed to a CDS, which involves the credit risk transfer of only one particular bond or reference name. The SEC sued Goldman for having allowed hedge fund client John Paulson to select some of the underlying subprime credits in the portfolio—which he then shorted by buying insurance from Goldman—while not disclosing the Paulson involvement to investors that entered the other side of the trade. The suit alleges that the prospectus names ACA as an independent third-party collateral manager performing the portfolio selection. It also alleges that Goldman represented itself as equity tranche investor to the tune of US$200 million to entice other investors to go along. Paulson netted US$1 billion, while losing parties RBS (US$841 million) and IKB (US$150 million) had to be bailed out by the UK and German governments, respectively. Goldman denies the charges, saying that it made a US$75 million loss on the investment (net of the US$15 million fee) and that it never told ACA that Paulson would be interested in taking a long position as equity investor. The case will likely increase the momentum for additional transparency and regulation of the opaque OTC derivatives space, precisely as the lines between parties harden again.

RGE Analysis by Nouriel Roubini:Public debt sustainability has exploded as a serious issue in advanced economies, most notably in the eurozone’s “PIIGS”—Portugal, Italy, Ireland, Greece and Spain—but also in many larger OECD economies, including the U.S. These issues within the eurozone stem primarily from a loss of competiveness, high wage growth and labor costs which outstripped productivity, undisciplined fiscal policies and, crucially, the appreciation of the euro between 2002 and 2008.Den Rest des Beitrags lesen »

Long time readers know that I am a huge fan of Martin Wolf, economist and columnist for the Financial Times. His writing is the reason to get the Pink Lady (as the Financial Times is known) as far as I am concerned.

This week’s Outside the Box has two columns back to back from last week from Wolf, talking about the problems in Britain which look like the same problem all over the developed world. Wolf argues (rather cogently) that the answer is to increase exports and for a further weakening of the pound. Quoting: